China must punish US for Taiwan arm sales with 'financial weapon'

10:30, August 08, 2011

Now is the time for China to use its "financial weapon" to teach the United States a lesson if it moves forward with a plan to sale arms to Taiwan. In fact, China has never wanted to use its holdings of U.S. debt as a weapon. It is the United States that is forcing it to do so.

The U.S. House of Representatives just passed a debt ceiling bill on Aug. 1. On the next day, a total of 181 members of the House of Representatives signed a letter sent to U.S. President Barack Obama stating that the federal government should approve the sale of F-16 C/D fighter jets to Taiwan as soon as possible to help ensure peace and stability across the Taiwan Strait.

The U.S. Senate passed the debt ceiling bill on Aug. 2, and Obama signed it into law. Shortly thereafter, the U.S. Treasury obtained the authorization to issue 400 billion U.S. dollars in new debt. Will China become the largest buyer of U.S. debt again?

Despite knowing that major creditor countries, especially China, would be the main buyers of its new debt, certain arrogant and disrespectful U.S. Congress members have totally ignored China’s core interests by pressuring the president to sell advanced jets and even an arms upgrade package to Taiwan.

U.S. treasuries will lose value if China stops or reduces its purchases of them on a large scale, which will also affect the value of China's U.S. treasury holdings. However, as the situation has gotten out of hand, allowing Washington politicians to continue their game might lead to more losses.

U.S. arms sales to Taiwan can only create more jobs for the United States but cannot improve the ability of Taiwan's military force to compete with the Chinese mainland. The essence of the problem is that some U.S. Congress members hold a contemptuous attitude toward the core interests of China, which shows that they will never respect China. China-U.S. relations will always be constrained by these people and will continue along a roller coaster pattern if China does not beat them until they feel the pain.

Stopping or massively reducing U.S. Treasury bond purchases will certainly bring losses to China to a certain degree. China must try to reduce the loss and transfer the passive situation to an active one. China should consider how to build a direct link between the U.S. Treasury bond purchase and U.S. domestic politics while adopting measures to gradually adjust the structure of China's foreign exchange reserves.

For example, China can directly link the amount of U.S. treasury holdings with U.S. arms sales to Taiwan and require international credit rating agencies to demote U.S. treasuries to force the United States to raise interest rates. China can also launch limited trade sanctions to the states of those U.S. Congress members who vigorously advocated arms sales to Taiwan to affect their employment.

Because it is the money of the people earned through hard work, China is not willing to arbitrarily use U.S. Treasury holdings as a weapon. However, China has no choice but to use it as a weapon to defend itself when facing threats to China's sovereignty.

Leave your comment45 comments

It comes down to money or peace. Peace or money. Is the downgrade worth the price of peace. Or is maintaing status quo worth the price of paying for war against yourselves.

Greg Autry at 2011-10-1076.167.72.*

When you borrow money from the mob eventually they come to break your knee caps.Greg Autry, co-author of Death by China

Luo Jie at 2011-09-1098.14.91.*

Regardless of the failures of logic in this article, following its suggestions would break China"s agreement to the World Trade Organization and be disastrous to the global economy, resulting in more damage to China itself than any other country.

Carlos Romanov at 2011-09-08203.153.104.*

The author is not credible. His views are naive and only serve to stir the uneducated. If I owe the bank $10 and cannot repay, I have a problem. If I owe the bank $1 billion and cannot repay, the bank has a problem.

Erik at 2011-08-31160.107.87.*

Many decades ago, China sold sovereign bonds worldwide to investors in many nations. They sold tens of thousands of these bonds on U.S. soil to American citizens on the recommendation of our government, indicating it was a solid investment. Over the last sixty years, China has refused to pay to these bondholders either the principal or interest on these full faith and credit sovereign bonds.Where is China"s commitment to it"s debts?